Kodak develops: A film giant's self-reinvention

This article was taken from the March issue of Wired UK
magazine. Be the first to read Wired's articles in print before
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Above an otherwise empty stage at the September 2009 PICNIC
Conference in Amsterdam, a video starts to play. On screen, a
white-haired businessman enters an empty theatre and begins to
speak in the rich, deep tone of a television announcer as a
slideshow of classic Kodak images rolls on a screen behind him.

"For more than a century," he intones augustly, "the Eastman
Kodak company has been part of our lives, our memories, our future,
continually pioneering technologies that make the process of taking
pictures easier... allowing us all to share the precious moments we
treasure. Many of us fondly refer to those special times as Kodak
moments."

It's all on-message -- until the tone changes abruptly. "Yep,
they shovelled on the schmaltz pretty thick, didn't they?" sneers
the announcer."But that kind of crap doesn't work anymore. People
want the latest digital things. Well, guess what, bucko? Kodak is
doing it. You thought they were just hiding out waiting for this
digital thing to blow over, didn't ya? Oh sure, for a while they
were like: 'Oh, there's no way digital's gonna catch on!'. Hell, 20
years ago they palmed the first digital camera off on Apple. But
now...Kodak is back!"

As the video fades, Jeffrey Hayzlett, Kodak's chief marketing
officer, strides onstage."How many of you have brought a roll of
film in the last year?" he asks the audience, then waits for a show
of hands. "Thanks all four of you. How many of you own a digital
camera or a digital camera on your cellphone? Welcome to my
world."

Kodak is trying to reinvent itself, and Hayzlett -- 49, with his
bearlike stature, cowboy boots and self-deprecatory charm ("I'm
just a guy from Sioux Falls, South Dakota") -- is its cheerleader.
At 44 conferences last year, he delivered speeches with the same
message: Kodak stumbled, but it's back.

Speaking to the PICNIC audience, his points elaborate on those
made so vehemently by the portentous announcer in what's known
inside Kodak as the "Winds of Change" video -- originally an
internal morale-boosting film that Hayzlett has repurposed for the
wider public. "I said: get [the video] out there," Hayzlett later
explains to Wired. "Everyone was saying 'no'. I basically shoved it
out, even though I didn't really have the authority at that
point."Walking around the stage with a throat mic and a remote to
advance his slides, Hayzlett speaks quickly and in perfectly turned
soundbites: "This is one of the biggest business turnarounds in
history. Sixty percent of the people in the last four years are new
to thecompany. Forty percent of all commercially printed materials
in the world are touched by Kodak technology. We have 19 products
that drive 80 percent of our revenue."

The list continues: every Oscar winner for Best Motion Picture
in the past 81 years has used Kodak film... 65 percent of Kodak's
business now comes from business-to-business products and 70
percent of them are digital. Hayzlett's message is simple: every
aspect of Kodak's business has been reinvigorated by winds of
change.

Kodak has certainly transformed over the past 20 years. In 1988,
it employed 145,300 people and made a profit of $1.17bn on $13.3bn
in revenue. By late 2009, the payroll had dipped to 19,900, a level
not seen since the Great Depression, with a quarterly loss of
$111m. How could this happen? The usual explanation is that Kodak
failed to see the approach of digital.

In fact, Kodak was more than ahead of its competitors: it
invented the digital camera -- even though it lacked the foresight
to exploit it. Steve Sasson was a new hire back in 1975 when he was
asked by his supervisor to research how to build a camera using a
relatively new type of electronic sensor. Charged-couple device
(CCD) sensors had been invented in 1969 by Willard Boyle and George
Smith, who later shared the Nobel prize for physics.

Sasson found little existing research into digital imaging,
although Texas Instruments had built an analogue filmless camera in
1972. He pulled together the lens from a Kodak motion-picture
camera, an analogue-to-digital convertor and some CCD chips -- and
built the digital circuitry from scratch. By December 1975 he had a
working prototype.

But the innovation failed to gain backers in the then sprawling
company. "Some people talked about reasons it would never happen,
while others looked at it and realised it was important," he tells
Wired during a recent visit to London to collect an
Economist Innovation Award for his services to
photography. Now59,Sasson recalls his decision not to use the word
"digital" to describe his prototype. "I proposed it as filmless
photography, an electronic stills camera," he says. "Calling it
'digital' would not have been an advantage. Back then, 'digital'
was not a good term. It meant new, esoteric technology."

Kodak's executives were not enthusiastic. "I was asked to
estimate when we would be able to produce a 2MP [megapixel] image
and at that point it looked to be at least 15 to 20 years away,"
recalls Sasson. Early objections were intellectual, but that
changed: "By the late 80s they were coming from the gut: a
realisation that [digital] would change everything" -- and threaten
the company's entire film-based business model.

Kodak was slow to capitalise on another of its inventions from
1975 -- the Bayer colour-filter pattern used by all modern digital
cameras. Kodak's first 1MP camera, the Easyshare DC210, was
released in 1998. However, its first digital camera, the Quicktake,
was licensed to and sold by Apple in 1994.

Kodak's reluctance to let go of the vast profits from film was
understandable. In 1999, its film sales rose by 6.5 percent to
$3.1bn. Todd Gustavson, curator of technology at the George Eastman
House museum in Rochester, New York, says:"Kodak was almost
recession-proof until the rise of digital. A film-coating machine
was like a device that printed money."

Still, it recognised the threat. "Not a day went by when there
wasn't a discussion about when film would go and be replaced by
digital," recalls Dito Garcia, a 21-year company veteran who now
runs one of its commercial-printing product lines, Prosper Press.
"Then, in early 2004, I was driving to work and heard a news report
-- Kodak said film was declining. It was the first time we had
officially admitted that."

Diver & Aguilar

By the time Antonio Perez (who joined Kodak in 2003) became its
CEO in 2005, the company had spent years with too much technology
in its labs rather than on the market. That was the first year when
Kodak's sales of its growing range of digital cameras outstripped
traditional film. It still recorded a loss of $52m.

Perez, who had spent 25 years at Hewlett-Packard, decided that
Kodak needed a radical restructure. This would require job cuts --
30,000 in 2005 alone -- and plant closures. So he toured film
factories destined for closure to explain why workers were being
let go. "I said, please stand up if you have a digital camera in
your house," he explained to journalists. "Forty percent would
stand up."

Kodak outsourced camera manufacturing in 2004. It was the first
time since George Eastman founded the company in 1892 that it had
ceded control of production to a third party. Film, meanwhile,
continued to decline. Revenue from traditional film-based products
fell another 15 percent in 2006-7 from $1.1 billion to $951
million. Kodak's time was marked.

Belatedly, though, its digital business was growing. By the
fourth quarter of 2007, digital revenue was $2.2 billion, an
increase of $288m from the same quarter in 2006. But the company
was not out of danger: it also faced the wider economic downturn.
After six straight quarters of growth, sales slumped by 24 percent
in 2008 to $2.43 billion as demand fell for digital cameras and
inkjet printers, and patent royalties declined. Perez believes the
restructuring saved Kodak from collapse during 2008's slump: "If it
had happened two years before, we would have been dead."

Perez's strategy has been two-fold: to rely more on Kodak's
expanded commercial business, and to innovate with consumer
products. Today 65 percent of its revenue comes from
business-to-business products such as commercial printing, and ten
percent from the consumer inkjet market.

Sometimes chance plays a role in corporate revival. Perez's
decision to move into inkjet printers sprang from his first visit
to Kodak's Rochester research labs. "He toured the labs looking for
things we could work on with outside partners," recalls Steve
Billow, an engineer in the inkjet division, "but then he saw our
injector and ink technology."

Drawing on his experience at Hewlett- Packard, Perez realised
that Kodak had most of the components necessary to develop a new
inkjet printer -- one that combined the advantages of the two
competing methods of inkjet printing, pigment inks and dye
inks.

In a product-lined conference room at Kodak's headquarters in
the centre of Rochester -- an early- 20th century building covered
in scaffolding as part of a two-year renovation project -- Billow
holds up a series of test tubes filled with brightly coloured inks.
"Dye-based inks are like food colouring," he says. "It's
essentially a salt that dissolves in water. They're bright and easy
to work with, but fade quickly -- within ten years. Pigments are
solid, tiny balls of plastic floating around in ink. They're good
at resisting fade and attack but scatter the light, which can dull
the colour."

While working on analogue film research, Kodak developed a way
to mill material at a nano-particulate level -- a technique that
could be applied to inkjet printing. Terry Taber, chief technical
officer, explains: "It was developed to manipulate silver halide
and the chemical components for film layers. There are over 300
discrete chemicals in traditional film and, as we got to very fine
grade film, particle size began to be more and more important."

Billow says applying the technique to inkjet printing was the
result of pure experimentation: "This technology looked cool, so we
said, why not attempt to grind up pigments?"By milling the pigment
particles to a smaller size, Kodak could create an ink which would
be more fade resistant but not at the expense of brightness.

But it was Perez's arrival which pushed the technology to
consumers. The nano-milled ink was already being sold to commercial
clients, but the firm's vision stopped there. "We must have had a
yearly discussion about entering the [consumer] inkjet business
from the late 90s onwards," Billow recalls, "but we were so focused
on photos."

Perez knew from HP that home users of photo printers would also
want to print documents. He wanted a product combining the
vividness of dye and the longevity of pigment. In late 2003,
Project Goya was formed, named in honour of Perez's Spanish
heritage.

The project team was split between Rochester and San Diego, home
to several experts Kodak wanted to consult with. Security was an
issue -- Hewlett-Packard has a significant corporate presence in
the city. "It was so secret that when we got to the hotel suite for
the first meeting, there were security guards on the door and the
room had been swept for bugs," Billow recalls. "Each time we met we
had to sign security and confidentiality documents."

Kodak launched its inkjet printer in February 2007, with the
simple marketing message that its printers, by cutting ink costs,
could save customers £75 a year. Hayzlett, with his eye for a good
catchphrase, dismisses Kodak's rivals as "Big Ink". As he sees it,
"The ink shouldn't be expensive, the razor blades shouldn't cost
more than the razor. Our ink usage rates are double what the
competitors are getting."

Such aggressive marketing has helped. Kodak has sold a million
printers and sales are growing -- by 128 percent year-on-year
during the third quarter of 2009. Its multi-million-dollar
commercial printing presses, like its inkjet printers, rely on
technology first developed in the analogue film age. The Prosper
Press line of commercial printers relies on a print head called
Stream, which came out of Kodak's research into film coating.

Terry Taber explains: "We call it Stream because it dispenses
ink in a stream at extremely high speeds, printing 650 feet [198
metres] per minute. It came from our understanding of creating
coating heads for film. About 20 years ago we developed a coating
head where the material was dropped in a stream. We took that
experience and applied it to making a print head that can do that
with ink or, in fact, materials of widely differing viscosity."

Diver & Aguilar

As with the inkjet business, the arrival of Perez was the
catalyst for commercialising the technology. Jim Chwalek, one of
Stream's inventors, recalls demonstrating it to Perez: "When he
toured the labs, he instantly recognised how we could apply it. He
has the right background -- a combination of technical moxie and
marketing smarts. I distinctly remember his reaction. He said:
'Wow! You've really got something here.' He has a great ability to
look at a very basic early prototype in the lab and see how to
apply it."

From a basic start as a control chip with eight nozzles, Stream
has been developed into a commercial press with 60,000 nozzles.
Kodak first demonstrated Prosper Press at the DRUPA printing
conference in 2008. Its first product, the Kodak Prosper Black
Press, aimed at the book publishing industry, is due to launch at
the end of the first quarter of 2010.

Chwalek is enthusiastic about Prosper Press -- it can deliver
quality comparable to Kodak's digital plate offset presses, yet is
flexible enough to create unique pieces." People say magazines and
newspapers are dying, but technology like this could give them new
life," he says. "It'll bring down the cost but also allow
microselling of customised publications. It'll open up new business
models."

Andrew Tribute, of print consultancy Attributes Associates,
predicts the Prosper Press will be a "significant industry changing
technology", but not right away: "Prosper will be the future of
Kodak -- it will not happen overnight. Kodak's investors will have
to wait for [it] to make a substantial contribution to Kodak's
revenue, but there is a bright light at the end of the tunnel."

Terry Taber also points to technologies such as the firm's work
in anticounterfeiting materials research as future sources of
revenue.

Perez may be driving the business's structural changes, but
Hayzlett is the revival's most visible frontman. His methods are a
world away from the slow moving "old" Kodak. A born salesman, he
shoehorned 40 Kodak references into one US episode of The
Celebrity Apprentice when he appeared a guest judge.

Hired in April 2006 as chief marketing officer in Kodak's
graphics communications group, Hayzlett became chief business
development officer before rising to overall chief marketing
officer. That happened in October 2007.

Hayzlett's most obvious contribution to the change in Kodak's
public profile is his use of social-media tools. His Twitter
account (@jeffreyhayzlett) had
13,186 followers when Wired met him; Kodak's main Twitter
account(@KodakCB), run by
chief blogger Jenny Cisney, had 16,717. Kodak's fan page on
Facebook, where it shares customers' photos and gives product
advice, had 55,221 fans. Hayzlett's prominence on Twitter was also
a driving factor in Kodak's sponsorship of the 140Conferences. It
also runs two official blogs -- A Thousand Words (taking
and sharing pictures) and A Thousand Nerds (a more
technical slant).

Leslie Dance, formerly chief marketing officer at Motorola and
Burberry, is now Kodak's vice-president of brand marketing. With
her Anna Wintour-style haircut and broad grin, Dance talks at
length about Kodak's hypothetical customer, known within the
company as "Katy".

"Katy's between 25 and 35, probably has a few kids, has very
little time and loves Facebook," Dance explains. While Hayzlett
focuses on Twitter and influencer favoured conferences, Dance
promotes the brand on Facebook, YouTube and wherever else she can
reach Katy, her fictional younger relative Kenza, and a more
grandmotherly archetype referred to as Katherine.

Social sharing is at the heart of the team's approach to digital
photography. Dance estimates that around 80 percent of those buying
Kodak's digital cameras in the US are women, and much of its
marketing is geared towards persuading that demographic that its
cameras are easy to use. So as well as placing 70,000 Kodak Print
Kiosks in locations such as malls as a simple way to create paper
copies, Kodak is also pushing its online Kodak Gallery as a
comfortable home for its mainly female market.

Kodak Gallery started out in 1999 as Ofoto before Kodak bought
it in 2003. It currently stores more than five billion
high-resolution images and has around 75 million registered users,
making it one of the largest social networks (although Kodak won't
say how many are active users). It's a photo-sharing site, but is
also geared towards selling physical products -- photo books,
prints, photo cards and calendars. The site exclusively printed and
sold The Official Obama Presidential Inauguration
Album.

So where does all this leave the traditional business --
photography? Besides selling its own digital cameras, Kodak still
earns cash from its patents used by every other manufacturer of
digital cameras. It is currently suing Apple and Research In Motion
over alleged infringements of its patents in the iPhone and
BlackBerry.

Yet Hayzlett still has a battle persuading consumers that Kodak
is no longer a failed analogue company. Brian Lam, editor of the
Gizmodo blog, recently summed up this troubled perception: "My
first digital camera was a Kodak, because Kodak was the brand for
imaging even through the late 90s, before the Canon and Nikon train
barrelled past Rochester, leaving Kodak a ghost town. Kodak was
invested in the past."

Diver & Aguilar

So the company has turned to low-cost high-definition digital
video cameras to symbolise its renaissance in consumer photography.
Pure Digital's Flip created the pocket digital video camera market
when it launched in 2006 and its follow-up, the Flip Ultra, has
topped Amazon.com's digital video camera chart constantly since it
launched in 2007 (Cisco bought Pure Digital for $590 million last
March). Kodak saw the burgeoning market as an opportunity.

It launched its first pocket digital video camera, the Zi6, in
July 2008. Its successor, the Zi8, was released in July 2009,
having taken just five months to design, build and release."Flip's
a cool name, but let's get to the facts," Hayzlett says of the
market leader. "It has a smaller screen, no image stabilisation and
a lot less features. The first car was cool, but a Ferrari's
better."

Taber says Kodak's decision to outsource its manufacturing
allowed such a fast turnaround: We were once very vertically
integrated, nothing outside the company really influenced us. Now
we're thinking openly. If you're going to do something quickly,
it's about bringing all the pieces together."

Kodak has also embedded marketing people in research teams,
rather than separating marketing and technical teams. Taber says:
"A cross-functional team develops the technology in the context of
the marketing application." In the case of its pocket video
cameras, Kodak's engineering team took their lead from the trends
its marketing group was observing in consumer behaviour.

Cooperation created a well-reviewed product, but the choice of
name was more problematic. An otherwise glowing review in the
Boston Globe stated: "When George Eastman needed a name
for his camera company, he came up with something short, crisp and
memorable: Kodak. When Kodak needed a name for its new pocket video
camera, its marketing geniuses came up with something dreadful: the
Zi8."

Hayzlett immediately decided to launch a competition on Twitter
to find a better name for the Zi8's as-yet-unnamed successor. Why
not defuse the criticism by showing that the firm recognised its
mistake? But he faced a stumbling block: the legal department told
him that the company would face a fine if it didn't seek permission
to run the contest. Hayzlett says: "For two days legal was saying
we couldn't put out a contest because we'd get a fine. Finally, I
said: how much could the fine be? $50,000. OK, let's go. Hit the
tweet. We had thousands of entries. Then the form came. And the
fine was...$300."

The follow-up to the Zi8, the more rugged PlaySport, was
announced at the Consumer Electronics Show in January and named by
Twitter user @mikecolbourn.
Hayzlett, meanwhile, has got plenty of mileage out of the naming
story. He recounted it to Wired during two separate interviews (one
during the 140 Conference in London, the other at Kodak's Rochester
headquarters), at PICNIC in Amsterdam and at the ANA Masters of
Marketing Conference in Phoenix. The repetition shows the
consistency of his message -- Kodak's now leaner and meaner -- but
it also uncovers an occasional disconnection between Hazlett's
style and Kodak's culture.

Hayzlett has talked both on stage and off about the difference
between the time he thought it took to launch the contest and the
reality: "I kept saying it took days and days and days, and the
team had to take me aside and say, Jeff, it took 28 hours," he
admits. His willingness to be the straight-talking social media CMO
has ruffled feathers. At PICNIC,he announced that the Zi8 had" one
of the stupidest names in the world". Both current and former Kodak
staff told Wired that Hayzlett's criticism of his "stupid" team
went down badly. It's a lesson he's learned. He still tells the
naming story, but he no longer blames his team.

Hayzlett's open attitude extends to aspects of his personal life
too. He stopped by to say an unscheduled hello during Wired's visit
to Rochester. Arriving unannounced at the restaurant where Wired
was eating with David Lanzillo and Nancy Carr of Kodak's PR team,
he began to tell the story of chasing and catching a group of
youths who had been attempting to break into a car outside his home
in South Daktota. To people who follow Hayzlett on Twitter, it was
not a new tale. He had tweeted it in almost real time:

> Can't sleep, waken [sic] in
middle of night by four people trying to break into our car, caught
two of them via a chase. Crime stopped :) 11.12pm Nov
28
> Ran after them in my underwear! what a sight! lol then came
back, dressed, chased them down in the car and blocked them til
police came 11:25pm Nov 28> Two got away but its very cold out lol and they were
without their car, got one of the guys and two girls waiting in the
car. 11.27pm Nov 28 > I think the sight of me chasing the robbers in my
boxers made them stop & laugh then I could nab them! Lesson:
more boxers, less guns! 11.56pm Nov 28
> Deciding my need new title, no longer CMO, now CAO Chief
Arresting Officer! :) 12:18am Nov 28

Hayzlett's big, brash approach might seem out of step with the
character of the large, corporate beast Kodak had become by the
late-80s. But his unorthodox style has quite a lot in common with
the company's founder George Eastman. When Eastman founded the
Eastman Dry Plate Company and the General Aristo Company, which
went on to become the Eastman Kodak Company, its base in Rochester
was a rural settlement with one main street. Through Eastman's
patronage the town grew into a city with theatres, an orchestra and
schools all named after him.

Kodak Park, the 900-acre manufacturing plant that grew up at the
heart of the city, has now become Eastman Business Park following
the staff cuts. Yet it still has its own power plants, a fire
department and an internal railway system.

Though Hayzlett's speeches have often stated that the firm is
now "not your father's Kodak", the stripped-back company has,
indeed, returned to the principles that Eastman himself espoused.
Hayzlett says of Eastman:"He was brilliant, especially in
advertising and marketing. He said: 'Press one button and we do the
rest.' We've brought those tenets back."

Still, the company's not there yet. Kodak lost another $111
million in the third quarter of 2009. Last September, New York
private-equity group Kohlberg Kravis Roberts injected $300 million.
It was a vote of confidence, but it gave KKR the option to own up
to one-fifth of the firm and the right to levy a steep ten percent
interest rate.

Kodak's official financial projections suggest it will continue
to struggle in 2010 but return to profit by 2011. And analysts are
beginning to strike a more positive tone about the firm. Ulysses
Yannas of US analysts Buckman, Buckman & Reid says: "I don't
see there's any fat left, which suggests that when this turns
round, you're going to have a wild ride."

Perez and Hayzlett have certainly reinvigorated the internal
company culture. All the employees Wired has spoken to both on and
off the record report a rise in morale and a sense of hope for the
company's future. And although its financial situation remains
uncertain, it has come back from the brink. Even Hayzlett, Kodak's
most ardent cheerleader, admits how dire the situation got: "Jim
Collins [in his latest book How The Mighty Fall] says
there are six stages of decline for business. But you can go to 5.5
and comeback from it. Apple did it. IBM did it .We've done it. We
were at stage 5, for sure."

Will Kodak survive in its new, leaner configuration? It has two
great advantages. First, the power of a recognised and trusted
brand. Second, its proven ability to invent things. Hayzlett says:
"I joke that Rochester's so cold, we've got nothing to do all day
but sit inside and invent things." It's a quip, but it cuts to the
heart of Kodak's biggest error -- and its biggest opportunity.
Kodak prospered because of invention and declined because it was
too slow to capitalise on its research. Its next challenge is to
put that spirit of invention at the heart of the picture.

Edited by Mark Brown

Comments

Kodak certainty like to advertise the fact its Global,E-mails,Blogs worldwide.We all encouraged to follow what they are doing ,but,when it comes to handing out a prize camera it only applies to USA? so end of story I think

tom ormiston

Mar 16th 2010

Which is the worlds most selling digital "camera"? ... Answer is Nokia !! So why Kodak doesnt make cell phones?

Abhiram

Mar 22nd 2010

I have my husbands Kodak transparencies and am wondering where I could get them printed.Maxine